Slower Rate Of Inflation Is Reported

By John M. BerryMay 24, 1980

Inflation at the retail level slowed to an annual rate of 11.4 percent last month from the 18.1 percent rate of the three months before, but pay still rose less than prices and workers lost ground, the Labor Department reported yesterday.

Gasoline prices, which jumped 3.9 percent in March, were unchanged in April, accounting for about one-half of the deceleration in the inflation rate, the department said.

Overall, the consumer price index climbed 0.9 percent in April with housing costs, including higher mortgage interest rates, leading the way. But it was the smallest monthly increase since January 1979, with the price of food from grocery stores going up 0.4 percent and clothing 0.1 percent.

In the Washington area, grocery store prices fell 0.2 percent instead of rising as they did nationally, the department said. They had increased 0.8 percent in March.

White House press secretary Jody Powell called the April CPI "extremely good news for American consumers and American business. It is perhaps the first major evidence we are on the right track." He added, however, "We are not out of the woods yet on inflation."

And President Carter's chief inflation adviser, Alfred Kahn, cautioned, "While I'm relieved that we're moving out of double-digit rates -- showing that we've stopped or even reversed the almost hysterical fear of inflation -- the underlying [inflation] is still there."

Some economists attributed part of the easing in inflation to the rapidly spreading recession, and said they expect the CPI for May, which will be released in late June, to show an increase even smaller than that of April.

The recession has produced a sharp drop in demand for bank loans and a big decline in interest rates. That decline continued yesterday as Citibank, the nation's largest commercial bank slashed its prime lending rate by an extraordinary 2 percent points to 14 1/2 percent.

Some other large banks, including Manufacturers Hanover Trust Co., the fourth biggest, followed Citibank's lead, while others came down to 15 percent, (Details, Page C8.)

Treasury Secretary G.William Miller, in an interview with the Associated Press, noted both the lower inflation rate and the big cutback in consumer spending, and said. "Now that we have so remarkably corrected the inflationary phychology and the excessive demand for credit, it's time to go back to normal consumer behavior, people behaving in a normal way.

"We are not trying to restrain normal consumer spending. What we were trying to nip in the bud [with restraints on consumer credit] was the anticipatory buying and borrowing, as if there were no tomorrow, as sort of a frenzy. And I think that's been broken," Miller said.

The Federal Reserve, with administration backing, Thursday eased those and other credit restraints it had imposed on March 14. Both the administration and the Fed are concerned lest overly large drops in consumer buying lead to a much more severe recession.

Another reason for consumers' recent caution is that income has not been keeping pace with inflation. Even in April, with prices rising more slowly, most workers still lost ground. The Labor Department said its hourly earnings index fell 0.7 percent last month after adjustment for inflation. Real gross weekly earnings were hit even harder, declining 1.2 percent, due to both a shorter workweek and inflation.

The improvement in inflation affected virtually all goods and services, the department said. More than half of the April increase was due to higher homeownership costs, which rose 1.9 percent and account for one-fourth of the CPI.

Mortgage interest rates, which are included in CPI with some lag, continued to go up. Analysts said the recent sharp drop in rates probably would not show up until the June index is released in July.

Grocery store prices have risen a modest 5.9 percent in the last 12 months. Howard Hjort, chief economist for the Agriculture Department, warned yesterday that farm prices, which fell at a 26 percent annual rate in the first three months of the year, will probably go up later in 1980. In particular, he said, meat animal prices should register "a rather significant increase" in the third quarter as supplies tighten.

In April, meat, poultry, fish and egg prices stood 1.3 percent below their level a year earlier. If Hjort is right, they will soon be rising again.